Technological Disruption and Regulatory Response: The Case of Decentralised Finance

This article examines responses to the regulatory challenges posed by decentralised finance (DeFi), a fast-evolving domain of blockchain-based financial innovation. It investigates the factors shaping divergent regulatory strategies, with a focus on the European Union’s comprehensive cryptoasset framework and selected comparative insights. Adopting a qualitative legal methodology – combining doctrinal-functional analysis, multivocal literature review, and two case studies – the authors explore how regulatory responses are influenced by three key variables: legal tradition, the financial function performed by blockchain-based solutions, and the level of technological and institutional autonomy. The case studies – Bitcoin as a payment instrument and cryptoassets as collateral – illustrate how functional and institutional contexts shape regulatory treatment. The findings suggest that highly autonomous DeFi solutions challenge traditional supervisory models, necessitating novel forms of regulatory engagement. Moreover, effective regulatory design depends on balancing legal certainty, innovation, and market integrity. The study concludes that rigid regulatory frameworks may hinder innovation and recommends greater use of soft law instruments and dynamic supervisory mechanisms to promote both adaptability and legal enforceability. The article contributes to scholarly and policy discourse by presenting one of the first analyses of recent regulatory documents, which have not yet been examined in the peer-reviewed literature. Through an interdisciplinary approach bridging finance, law, and technology, it provides practical insights for legal practitioners, financial professionals, and DeFi developers, alongside a concise conceptual overview of DeFi’s technological foundations.